Taxation of stipend income

Taxation of stipend income

Salary received by an employee is regular and also taxable. Salary is received by the worker on regular basis and has a proper legal procedure and is also defined in detail under Income Tax Act. However, Stipend is completely different from Salary. Whereas salary is received by a full-time employee, Stipend is an amount received by Students (generally) who work part time while studying generally in the form of internships or apprenticeships. It's a temporary income and varies from place to place, person to person and company to company. The stipend is a very confusing word and maybe that's the exact reason why it's not mentioned anywhere in Income Tax Act. Hence, Taxation of Stipend has always been a matter of debate. Salary and Scholarships are two terms that are somewhat similar or better close to Stipend Income. But Salary is taxable while Scholarship is not according to Income Tax Act. What should then Stipend Income be considered as and further should it be taxable or not!

Taxation of Stipend Income is a very debatable issue. However, this issue should be studied under different case scenarios;

Let us say that a Medical Student is doing his higher studies while also practicing medical in some hospital and earning some specific Stipend, that is being used for his fees, books, accommodation and other necessities. At this point should the Stipend Income be considered as taxable or not? Well logically speaking this Stipend in this specific scenario can be considered a scholarship somewhat. Since his Stipend is being utilized for his educational needs. But if this Stipend Income would not have been utilized for his educational needs the Stipend would not have been considered as a scholarship. But Income Tax Department do not work while considering specific situations, it works in a more generalized way.

One more factor that should be considered while deciding whether a Stipend Income should be taxable or not is the amount of that Income. The amount and the nature of the stipend should be the basis of deciding whether the income should be taxable or not.

So, we can conclude by saying that Stipend Income as long as given out for encouraging students (interns/apprentices) and promote their overall development should not be considered taxable. This is actually practical for when you do an internship or apprenticeship, the tax is not deducted as long as no future full-time employment is associated with it. It depends on the nature of Stipend whether to consider it close to Salary or close to Scholarship. Though sometimes, different companies have their own set of rules, there is no rule specified regarding 'Stipend Income' in the Income Tax Act and hence the term and the amount can be interpreted in more than one way. It's all about your perception and understanding when it comes to this topic.

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